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Online Retailing and Operations: Research from PhD Student Shengqi Ye

Nov 25, 2013

Shengqi Ye

Shengqi Ye, currently a doctoral candidate at the Kelley School of Business, is pursuing a degree in Operations Management focusing on online retailing. In this pursuit, he uses all available tools to develop his research, even when that means increasing his workload.

Connecting his background to the future
Ye studied automatic control as an undergraduate and connected the skill set to that of an Operations manager.

“My undergraduate major taught me how to design and control machines to achieve engineers’ goals,” explained Ye. “The tools and ideas I learned in my undergraduate program are very beneficial when I study Operations Management, which is essentially about designing and controlling manufacturing or service systems to achieve managers’ goals.”

Ye set a high standard for himself when first entering the doctoral program in 2009. He sought a deeper understanding of research methodology; he enrolled in a math course, not required for his degree. After a few more math courses, he is just one course short of an additional degree.

“It turned out that I took too many math classes, which almost met the requirement for a Master’s of Art in Math. Therefore, I am taking another math class and trying to finish the degree in Math this semester,” said Ye.

Orders from customers flood into Amazon irregularly. Handling the order delivery depends upon the requested shipping time. If a customer pays for Amazon Prime, their order will be filled before an order qualifying for “Free Super Saver Shipping.”

A non-Amazon Prime customer expects the order to take longer, but a customer with Amazon Prime expects to receive the package in two days. Therefore, it is likely that an Amazon Prime order will be submitted later than a “Free Super Saver Shipping” order but be delivered first.

Cross-docking in a fulfillment center is to take a product directly from the receiving dock to the shipping dock. This bypasses checking the items into inventory which reduces shelving and picking costs. For Prime orders, the process of cross-docking opens opportunities to ship the order on time while reducing costs. For free shipping orders, this process allows products to be shipped days in advance of the customer’s expectations.

However, using cross-docking to fulfill regular orders could incorrectly prioritize shipping due dates. For example, an item is cross-docked and sent to fulfill a regular order almost immediately after the order is placed. An hour later, a prime order is placed for that item. Now, the product needs to be picked from the shelf in the warehouse to fulfill the order within a strict two day deadline. The regular order was delivered within two days, before the customer expected the package, but the prime order may not be delivered on time. Cross-docking needs to be used strategically.

Ye, Cattani, and Souza use the Markov decision process to determine the optimal times to use cross-docking. This decision process takes into account variables including the number of units that have arrived at the fulfillment center and predicted number of unfulfilled demand in each period. Prediction of these indicators allows the fulfillment center to more precisely prescribe when to use cross-docking.

An operations constraint hidden in a marketing decision
Ye’s other research includes optimization of advertising on Google. Companies pay for a higher listing order on Google’s page when certain words have been searched. Associate Professor Goker Aydin, ArcelorMittal USA Undergraduate Faculty Fellow, and Assistant Professor Shanshan Hu along with Ye propose that the item’s inventory affects the cost-effectiveness of the advertisement’s ranking.

“How companies should adjust ranking is a marketing decision, yet we think managers should consider operations constraints when making this marketing decision.” points out Ye.

More specifically, inventory is a major constraint. Ye, Aydin, and Hu suggest that companies should rank their advertising lower when inventory is low. Companies will pay less for the advertising and there will be less trouble fulfilling demand. However, strategic visibility of these advertisements is always in a state of constant change.